So, are you surprised by that news? That new home sales dropped like a rock in May? I can’t say that I am. I try hard to keep my politics out of this site, but what the heck were they thinking? If you look at the chart that CNNMoney has posted, you can clearly see that, not only did they drop, but they dropped below where they were before.

And obviously, there is a very nice spike for a while. Incentives do make a bit of a difference. And, in all honesty, if we had been in a situation where we felt we could afford a new home, we would have jumped at the opportunity to take advantage of those incentives. But the spike was just that. A small percentage of people taking advantage of an incentive that made it very attractive to buy a new house. What it didn’t do was return home sales to anything like previous numbers. In fact, it didn’t even get the numbers back to 50% of what they were in 2000! And now, after the incentives have expired, they dropped 33% to an all-time new low. The last time the numbers were this low was in 1981!

I think everybody has the right to purchase a home. You shouldn’t be dis-allowed from purchasing a home. But, you still have to pay for it! Owning a home is not a right. The ability to purchase one if you can afford it is. Years and years of politicians buying votes by pushing lenders to finance houses to people who couldn’t afford them is what caused the housing market (and our economy as a whole) to be in the condition it is in. And that crashs’ ripples are still being felt throughout the country and the world. Creating incentives to buying a home just extends that streak. People see that $8000 and think that they can afford a home that they really can’t because they will get a nice $8000 check to help pay it down. But, when that money comes around, what are they going to do with it? Spend it.

And in five years, when those mortgages adjust, we’ll have a nice little mess to figure out again. Sure, it won’t be anywhere near as bad as the current one, but it’ll be there. If only we could teach people to be responsible consumers. To not buy what they cannot afford, and to only spend what they earn or less. If we could do that, then they wouldn’t need those incentives to buy a home. They might actually be able to afford it without them.

It struck me the other night, as I was reading a book and came upon a section on Ponzi Schemes, that insurance companies are borderline ponzi’s themselves. The definition of a ponzi scheme is when the broker/banker/agent takes money and promises a unusually high return and then pays said return from the incoming money from other investors. Eventually, when the incoming investors dry up, the agent can no longer pay the returns and the scheme comes crashing down.

Now, let’s look at insurance companies. We, as the insured, pay the insurance company our premiums in return for insurance against some sort of event. With health insurance it’s against some sort of health event. With car insurance, it’s against some sort of accident. In any case, it’s a payment. Or a return on the premium. Very seldom will you actually come out with your entire investment. What would happen if the premium payers dried up? It would get more difficult for the insurance companies to pay any claims. Where the key difference lies is that if you stop paying your premiums, they stop paying any claims for you. Also, as a premium payer, you never really expect your money back unless you have a claim. You’re paying for the “in case”, if it were to happen. In a Ponzi, you’re investing your money specifically for the return. You’re not going to stop investing as long as the returns are stable. And a Ponzi only really dies when the new investors stop coming. If new insured stopped coming to the insurance company, they would still have their current insured to collect premiums from.

So, no. Insurance companies are not Ponzi Schemes. But, it sure feels that way sometimes.

With the passage of the huge “stimulus” bill a couple weeks ago, one of the things that has been talked quite a bit about by both the media and the President is the reduction in the taxes that are taken out of our paychecks. Some $13 or so dollars on average will be left in our paychecks each week for us to spend, spend, spend. Isn’t that great? (can you taste the sarcasm?)

What they aren’t telling you is that it isn’t really a reduction. Sure, they’ll be taking less out of each paycheck. But they didn’t reduce the tax bracket rates any. All they’ve done is reduce the percentage of your wages that will be withheld from your paycheck. You’ll still owe the same amount on your taxes at the end of the year.

Here’s how it will work. If you got a return this year, and are planning on getting one next year, it will be reduced by the extra taxes that didn’t get taken out of your check. $13 less withholding dollars means $13 (or more) less refund. Where it could really hurt people is where the person is already expecting to send a check with their tax forms. Their check will have to be much bigger because of all this.

Now, to avoid all of this, you could instruct your payroll department to take that $13/week out anyways. You could adjust your withholding on your W-4 so that more is taken out. Or you could take that $13/month and stuff it away in a shoebox so you’ll still have it to pay Uncle Sam with come next April 15.

Any way you shake it, it comes down to a publicity stunt to make all the other needless spending in the bill look better. It’s the proverbial spoonful of sugar to make a whole lot of pork go down.

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